China third-quarter growth seen steadying at 6.7 percent but property frenzy a worry

A labourer walks on scaffolding at a residential construction site in Qingdao, Shandong province, China, November 18, 2015.
REUTERS/China Daily

BEIJING China's economy likely grew 6.7 percent in the third quarter from a year earlier, the same pace as in the previous quarter, as increased government spending and a property boom offset stubbornly weak exports, according to a Reuters poll of 58 economists.

Chinese leaders have been battling to get the world's second-largest economy back on steadier footing even as they try to jumpstart painful and politically sensitive reforms to cut industrial overcapacity and growing debt.

But the expected rate of expansion in the third quarter would still be near the weakest since the global crisis, and analysts are increasingly worried that growth is becoming too reliant on government spending and a housing market that is showing signs of overheating.

Despite a rocky start to this year, the economy grew 6.7 percent in the first half as the government cranked up infrastructure spending and state banks extended a record amount of credit.

Premier Li Keqiang said this week that the economy performed better than expected in the third quarter due to a rebound in factory output, company profits and investment, and added that debt risks are under control.

Debt has emerged as one of China's biggest challenges, with the country's debt load rising to 250 percent of gross domestic product (GDP). Excessive credit growth is signalling an increasing risk of a banking crisis in the next three years, the Bank of International Settlements (BIS) warned recently.

Economists in the poll estimated GDP grew 1.8 percent quarter-on-quarter, also steady from the second quarter, though only 15 analysts gave sequential forecasts.

A surprisingly strong third-quarter reading on Wednesday would likely boost global financial markets, particularly commodities, which have been buoyed by strong Chinese imports of crude oil and other resources to feed its construction boom.

A weak outcome would raise the risk of more capital outflows and put more pressure on the yuan currency, which has slid to six-year lows. It could also reduce Beijing's appetite for tough reforms.

While worries about China's reliance on debt will persist, analysts agree the greatest near-term risk is a possible correction in the high-flying property market, which accounts for about 15 percent of gross domestic product.

More than a dozen cities have imposed or tightened restrictions on home purchases in recent weeks in a bid to cool soaring prices.

"While we don't think the coming correction in property prices will be a major source of financial instability, there will be an economic impact," analysts at Capital Economics said in a research note.

"This is one reason why we think that, having recovered somewhat recently, economic activity is set to begin slowing again next year."

China's trade data on Thursday rattled investors. September exports fell 10 percent from a year earlier, far worse than expected, while imports unexpectedly shrank, suggesting signs of steadying in the economy may be short-lived.

"We remain wary on China's export outlook given headwinds to global growth and business investment. Policies will continue to focus on managing domestic demand, with the help of an expansionary fiscal policy, in the remainder of the year," Julia Wang, China economist at HSBC, said in a note.

SOME IMPROVEMENT SEEN IN OTHER SEPT DATA

September industrial output, retail sales and investment readings, however, are expected to show some signs of improvement. The activity data will be released alongside GDP.

Industrial output growth is expected to edge up to 6.4 percent in September on-year as steel mills ramp up production amid healthy profits, while retail sales may have grown 10.6 percent - the same as the previous month.

Fixed asset investment growth for January-September is expected to tick up to 8.2 percent from 8.1 percent in the first eight months, but remain around the weakest pace since December 1999.

Strong government spending would likely contrast with further weakness in private investment, which grew just 2.1 percent in the first eight months of the year, a record low.

The government is aiming for annual economic growth of 6.5-7 percent in 2016, compared with 6.9 percent in 2015, the slowest expansion in a quarter of a century.

Next In Business News

LONDON Britain's trade deficit narrowed more than expected in October but overall there was little sign exports were getting much help from sterling's fall since Britain voted to leave the European Union in June, data showed on Friday.

LONDON Large banks in Britain want the UK government to allow their industry to remain subject to EU laws for up to five years after Brexit, a move likely to enrage eurosceptics who want to break away from the bloc's legal system as soon as possible.

FRANKFURT The European Central Bank contemplated even bolder stimulus measures than it agreed at Thursday's meeting but scaled back in a compromise move when conservatives, joined by several swing voters, pushed back, two sources with direct knowledge said.

Trending Stories

Sponsored Topics

Reuters is the news and media division of Thomson Reuters. Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Learn more about Thomson Reuters products: